The UK’s banking watchdog warned it will not engage in a “regulatory race to the bottom” today as Liz Truss and Kwasi Kwarteng prepare to shake up UK financial rules in a bid to boost growth.
The new prime minister and chancellor have been hinting at an overhaul of financial regulation in the coming months, with Kwarteng saying yesterday he will “outline regulatory reforms to ensure the UK’s financial services sector remains globally competitive.”
Regulators have also been granted a secondary objective of boosting competitiveness as part of the government’s Future Regulatory Framework Review in a bid to ignite growth in UK financial services.
But speaking today, Vicky Saporta executive Director of Prudential Policy Directorate at the Bank of England, said that the change in its remit “should not encourage risky bets on regulatory standards”.
“Taking our new competitiveness objective seriously will not mean entering a regulatory race to the bottom,” she told the Future of Financial Services Regulation conference.
“Instead, we will make rules that allow the UK economy to benefit the most from the UK’s strengths as a leading financial centre without compromising on safety and soundness.”
Saporta said the Prudential Regulation Authority would look to “turn the dial down” when it can in order to boost innovation, and when a “menu of options is available for pursuing safety and soundness” it will choose the one that facilitates competitiveness and growth.
The comments from Saporta come after Liz Truss’s leadership campaign suggested a full merger of the City regulators could be on the cards to prioritise growth.
Senior City figures and politicians have been urging caution over regulatory change however, warning that adopting a growth at all costs approach to regulation could threaten financial stability.
Former City minister John Glen said today that competitiveness and growth should remain as secondary objectives as government pushes ahead with the Financial Services and markets Bill, drafted by Glen and then-Chancellor Rishi Sunak.
“What I think [the bill] does do is address concerns for predictability and high standards,” he told the Following the Rules podcast. “We certainly don’t want to be racing to the bottom and competing on the basis of de-regulation.”
Glen’s also questioned elements of the government’s mini-budget last week which has sent markets into a spin, saying he would not have scrapped a cap on bankers’ bonuses amidst a cost of living crunch.